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Foreign Direct Investment And Jordanian Economy Growth

Introduction

The main aim of thesis would be to examine the impact of foreign direct investment on the Jordanian economic growth. The main focus area is that whether this foreign direct investment has any influence on the growth in economy of the country or not. In this research, the foreign direct investment has been taken as the independent variable and there are other variables associated to it as well. These variables have some impact on the process growth of the country’s economy.

Problems and sub problems

The main problem of the research as follows:

To identify whether there is a relation between the economic growth and foreign direct investment and if there is then how does it impact economic growth

Sub problems are:

What are the factors associated with FDI to be used for the showing the impact of FDI on economic growth of Jordon

What types of techniques will be used in order to complete the research

Delimitation of Study

Followings are the main delimitation of study:

Project will be based upon primary research which includes officials which are reachable as high rank officials are difficult to reach

Secondary research data will include only publically available data.

Importance of study

The study is important because it will analyze the present economic condition of Jordon and what role the foreign direct investment is playing on the present situation of economic condition.

Key Assumptions

Key assumptions are as follows:

It is based on both primary as well as secondary researches

All secondary resources are trusted that they give appropriate information

Primary research sample is considered to be small

Definitions

There are some important definitions which are related to the research. These definitions are as follows:

Foreign Direct Investment: foreign direct investment can be defined as the long term investment done by one country in another country. This is a foreign investment and it belongs to the participation one country in the field of transfer of technology, expertise, joint venture and management to the other countries. There are basically two types of foreign investment; one is the inward foreign investment and the other is the outward foreign investment. These two result in the FDI inflow and FDI outflow. It can be positive or negative

Economic Growth: Economic growth can be defined as the per capita increase in the gross domestic product of any country. It is considered to be a measure of aggregate income. It can also be defined as the rate of change of real GDP. The reference of economic growth will be based upon the quality of goods and services which are produced. It can be positive as well as negative. If there is a negative economic growth then we can say that the economy is going down or it is shrinking. This term will be associated with the economic down fall or recession

Primary Research: Primary Research can be defined as the collection of the data which is considered to be original. This research is also known as the field research. This research will often be done in case when there are issues attaining the secondary data. The primary research includes questionnaire, telephonic interviews, observing the things directly. There are two types of approaches for the primary research; qualitative research which includes interviews, observation of the participants, etc. and quantitative research which include laboratory experiments, questionnaires, field work, etc.

Secondary Research: secondary research can be defined as the research which is done by taking the help of the past researches which have happened. This research includes taking the information from book, internet, journals, etc. Secondary research is also known as the desk research

Gross Domestic Product: Gross Domestic Products can be defined as the market value of all the goods and services which are produced in a year. It is basically correlated with the standard of living. It comes under the heading of national account which is considered to be a topic of macro economics

Gross National Product: Gross national product is the market value of all the goods and services produced. There is a difference between GNP and GDP. In case of GNp, geographical locations are considered to be of great importance

Literature review

Openness and limitation of FDI investment in particular industries of Jordan

Jordon is a country which is classified as one of the 20 countries which follow UNCTAD benchmark of investment. It comes among the top 20 countries of the world. It is highly open for attraction of inflows of Foreign Direct Investment. The main reason for the inflow or the openness of the foreign direct investment of the company is the increase in the liberalization and the privatization in the country. With the increase in the privatization in the country and increase in the real estate with in the country, there has been a continuous increase in the foreign direct investment in the company since the year 2004. There are some barriers of the FDI investment in the country as well. For the past 80 years, there were around 80 cabinets were witnessed but none of the cabinet was selected. The main reason was the economic as well as the political issues which came in between. These political and economic issues can be considered as barriers for the foreign direct investment in the country (Mansur, 2008).

Sectors or industries that are most affected by FDI Investment

There were some important industries which are most affected by the FDI investment in Jordon. These industries are pharmaceutical, information and communication industry and automobile industry. There is a strong competitive edge which has been seen in these industries. The foreign direct investment inflows in Jordon are because of some foreign investors who believe that there are benchmarks for pharmaceutical, automobile and information and communication technologies. Foreign investors are going behind this kind of investment only. The main reason for these industries or the investment of these industries is that there is a very high demand for information technology and same is the case of pharmaceutical as well. There is such a high need that it is necessary for the foreign companies to invest so that they can get benefit of the growing opportunities in the country (Jordan Investments , 2010).

Direct/Indirect factor that affects Economy of Jordan

There are some direct as well as indirect factors which affect the economy of Jordon. These factors include partnership of the government of Jordon and the private sectors, increase in the challenges which are coming in front of Jordon economic growth, etc (USAID in Jordon).

Effect of FDI on key economic indicators like GDP, GNP etc

There are both sides of the affect of FDI on the economic growth. The positive aspects of the FDI on economic indicators like GNP, GDP are when there is an increase in the FDI inflow then obviously the growth of the country increase because foreign money is coming to the country and opportunities for employment is increasing inside the country. The negative side of the story is that when there is a failure in the foreign investment then maximum loss is attained by the domestic country only (Laura Alfaro, 2007).

Pros and cons of FDI Investment

Pros:

With the help of foreign direct investment, it could have been easy for the firm to expand the foreign market through licensing and exporting

FDI helps in low transportation cost for the companies. In this mainly horizontal FDI are concerned (Hunter, 2007)

There is an advantage that the companies get tax incentives in case of FDI

It helps in avoiding some of the uncertainty which occur because of the cost structure created by the foreign exchange market

There are some restrictions which are imposed by the customers. FDI helps in avoiding those constraints

Cons:

It is obviously seen that FDI is much more expensive for the companies than licensing and exporting

It is considered to be much more risky as well than exporting and licensing. This could be the major problem which exist with FDI

Social and Political impact of FDI investment

It has been seen for the past 30 years that the political and social impacts of FDI have been given a great attention. The impact is basically dependent on the factor whether there is high foreign direct investment or lower foreign direct investment. There is a link between the political risk and FDI of any country. There are some factors associated with the political constitutions of the country which help the FDI. These factors are stability in the government body, corruption, etc (Raheel, 2010).

Methodologies

There are some different types of methodologies which are used in the progress of the research. These methodologies will include the two types of research:

Primary Research

Secondary Research

Primary research

Primary Research will consist of the questionnaire which will be given to some of the experience people who belong to the economic background and can give their discussion about the impact of foreign direct investment on the economic condition of the company. There are some important tools which will be used in order to perform the primary research. First of them will be z-test. Z-test will be performed on the data which will be collected from the economists. This will satisfy the hypothesis which will be made and hence it would be possible for us to measure which are the factors among the foreign direct investment which affect the economic condition of Jordon.

After the z-test, when we will get to know about the factors influencing the economic condition of the country, then we will apply the regression analysis on these factors in order to check which among all the factors are most important. With the help of regression analysis, it would be easier for us to rank of the sub factors of foreign direct investment according to the relevance with the economic growth of the country

Secondary Research

In the secondary research, we follow several resources from internet. In this research, we will take out the information from the different sources on internet about those factors which we will use in the analysis of impact of foreign direct investment on economic position of Jordon.

Suggested Resources for study

The suggested resources of the study are as follows:

Questionnaire from the experience economic analysts

Different economic web portals

Research papers

Discussion papers

White papers

Books

Selection of best fit methodology

We will have to find out whether we will have stick on the secondary analysis i.e. whatever has been published on NEWS or we will go for the primary analysis. In this research we will use both the methodologies to come up to the final results. We will use primary research as well as the secondary research both. While using these researches we will keep in mind the fact that we will have to give equal weight age to the primary research as well as the secondary research. Then only, pure result will be possible.

Limitation of study

There are some limitations of the study which will be found in the research. These limitations are as follows:

The first and the foremost limitation of the study will be that we are using the primary research as well then it will be a problem for the sample size. It might be possible that sample size is not large enough to get the research.

There are some documents on net which we can not trust because there are some white papers which are not approved by some knowledgeable people but still these are published on internet

Future Scope of study

There are some future scopes for the research as well. The future scope of the research is that this research can be extended to include some other important factors except foreign direct investment. The future scope of the study may also be related to the fact that study may also be done for some other country except Jordon and results can be analyzed in order to find out the difference between Jordon and other country.

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